THE UNIVERSITY OF SYDNEY

FACULTY OF LAW

EXAMINATION FOR THE DEGREE OF DOCTOR OF JURIDICAL STUDIES,

MASTER OF LAWS AND DIPLOMA OF POSTGRADUATE LAW

CONSUMER PROTECTION LAW

NOVEMBER 1995 TIME ALLOWED: 4 HOURS

CANDIDATES MUST ATTEMPT THREE (3) QUESTIONS, WHICH MUST INCLUDE AT LEAST ONE QUESTION FROM EACH OF PARTS A AND B.

ALL QUESTIONS ARE OF EQUAL VALUE. EACH QUESTION MUST BE WRITTEN IN A SEPARATE BOOK.

THIS IS AN OPEN BOOK EXAMINATION.

PART A

Question 1

"From an economic point of view, companies, too, are consumers insofar as their purchasing activities are concerned; but, based on the protective aim of the legislation, it has been accepted in Sweden that the legal consumer concept must be confined to private persons who are acquiring goods, services or anything else of value mainly for their own use and not for resale or use in business."

(Bernitz & Draper, Consumer Protection in Sweden, 2nd ed, 1986)

Discuss the advantages and disadvantages of the consumer concept contained in this passage as compared with that contained in section 4B of the Trade Practices Act 1974 (Cth). Is s 4B a satisfactory provision?

Question 2

EITHER

"Cogent policy reasons justified the introduction of a scheme of strict liability for product defects. However the regime contained in [the United Kingdom legislation implementing the EC Directive on product liability] falls some way short of providing a true system of strict liability. The new rules carry so much uncertainty and in important respects bear so many similarities to the law of negligence that some doubt can be cast upon the usefulness of the legislation."

(Alistair M Clark, Product Liability (1989) London, Sweet &
Maxwell, p 213)

In light of this comment, discuss the extent to which Part VA of the Trade Practices Act 1974 establishes in Australia a regime of strict product liability.

OR

You have recently been employed by a large law firm with an extensive products liability practice. There is considerable debate among the senior lawyers in the products liability department of the firm as to what impact the provisions of Part VA of the Trade Practices Act are likely to have in Australia on manufacturers. You have been asked, in order to assist discussion at an inhouse seminar, to prepare a paper discussing the liability which would have arisen in each of the following circumstances had Part VA been in force at all relevant times.

a) In 1985 Pharmaceuticals Ltd started marketing a drug which gave dramatic relief to sufferers from certain crippling forms of arthritis. It has now transpired that in some users the drug causes a high risk of suffering a stroke (but those at risk of suffering this effect cannot be identified in advance). Extensive laboratory tests and clinical trials undertaken by Pharmaceuticals prior to releasing the drug had revealed no hint of adverse side effects and the drug had been hailed in the medical profession as a wonder drug. It was only when reports of an unusual rate of incidence of strokes were received in 1994 that Pharmaceuticals, using a newly developed research technique, undertook further tests which confirmed that there was indeed a causal relation between the incidence of strokes and use of the drug. In 1985 a medical journal in Argentina had carried an article suggesting on theoretical grounds that the ingredients used in making the drug might be expected to have this effect. However, at the time the journal in question was not known to researchers outside Argentina, and the few experts who had read the article considered the theory to be fatally flawed (a view which in light of discoveries made in the early 1990's has now been generally revised).

b) During 1990 to 1994 Automobiles Limited imported into Australia a very well known and expensive European car with a reputation for very high levels of safety features. Safety as well as quality featured in advertising of the car. The car did generally have very superior safety features, but because a market survey commissioned by the managing director of Automobiles suggested that many Australian car buyers had a prejudice against air bags, the cars imported into Australia were not fitted with air bags (even though they were a standard feature in cars of that make and model sold in Europe). At the time most competing cars sold in Australia were not fitted with air bags and this was generally known among car buyers. Complaints have been received from some people injured in accidents who have been advised that they would not have been injured had air bags been installed. In 1995, as more and more luxury cars sold in Australia offered air bags, Automobiles ensured that all further cars imported by it were fitted with air bags.

c) Elephant Ltd has marketed its Elephant brand cigarettes in Australia for the past 15 years. It has recently had some claims brought against it by heavy smokers (who can prove that they only ever smoked Elephant cigarettes) who have developed lung cancer and whose medical advice is that their condition is most probably due to their smoking habit. All of the claimants admit they were aware of the health risks in smoking and of the health warning printed on the packets of the cigarettes they smoked, but claim they were addicted and could not quit.

Question 3

"Many jurisdictions have experimented with a variety of techniques designed to provide a more generalised or 'abstract' control of unfair contract terms. This can take various forms, but typically a public authority or a consumer organisation will be empowered to seek an injunction or similar order prohibiting the continued use by a trader of a contract term that is unfair to consumers ... There has been very little reference to such approaches in the Australian literature."

(Harland, "The regulation of unfair contracts in Australia" in Rachagan (ed), Developing Consumer Law in Asia (1994))

To what extent does existing Australian legislation provide mechanisms for the abstract control of unfair contracts? Are those mechanisms satisfactory and, if reform were considered desirable, what improvements do you think should be considered?

PART B

Question 4

Joe was a recent law graduate who, unable to find professional employment, put his enthusiasm for electronic gadgets to good use by eking out a meagre living buying small lots of electronic novelties and selling them to suburban and country electronic stores. He purchased from Whizzo Imports Pty Ltd a lot of 100 Ajax brand novelty fluorescent telephones. He paid a total of $5,000. Alex, the manager of Whizzo, told Joe that the telephones had been very successful overseas, that the Ajax telephone was "a great little gimmick" and added: "You should be able to get at least $100 per unit from retailers."

Shortly after his purchase Joe was distressed to discover that although the Ajax telephones have been approved by a number of overseas regulatory authorities, the Australian authorities have not approved them for use connected to the public telephone system because they incorporate a novel working mechanism. One expert has suggested there may be some risk of their causing damage to the system and of causing an electric shock to technicians repairing telephone lines. Although this expert's opinion is generally considered to be an extreme one, the Australian authorities have decided to withhold approval. The sale of unapproved telephones is not illegal, but it is illegal to plug them into the public system, and people so using them are liable to a fine (though in recent years no prosecutions have in fact been brought). Surveys have shown that over 95% of purchasers of novelty telephones use them for home use connected to the public system, though in a few cases they are bought for use in internal communications systems in large homes.

The fact that the telephones were not approved by the regulatory authorities became generally known in the trade through a story published in a trade magazine after Joe made his purchase. The Ajax telephones became unsaleable. Joe insists he would never have bought them had he known they were not approved.

Whizzo refuses to accept the return of the telephones and refuses to pay any compensation to Joe. Alex insists that at the time of the sale to Joe he did not know that the telephones had not been approved by the Australian authorities but Joe's recent discussions with some employees of Whizzo throw some doubt on this.

The contract which Joe had signed with Whizzo (and which Joe had read carefully before signing) contained the following:

"Clause 8. All conditions, warranties and other terms, express or implied, not set out herein are hereby excluded. This document represents the entire agreement between the parties. The buyer acknowledges, and warrants to the seller, that no promise or representation as to quality, fitness for purpose, value or otherwise relating to the goods sold has been made or given by, or on behalf of, the seller, or relied on by the buyer".

Shortly before he bought the Ajax telephones Joe had been offered by another supplier 100 Acme novelty telephones at a total price of $6,000. These telephones are very similar in appearance to the Ajax telephones, but the Acme telephones have been approved by the telephone authorities and a friend of Joe's who bought a supply of Acme telephones has had no trouble in selling them to retailers at an average price of $100 each. Joe had considered buying the Acme telephones, but because he thought he would make a better profit on the Ajax telephones and could not afford to buy both, he had decided not to go ahead with the Acme deal.

Advise Joe.

Question 5

(Attempt two only of the following three parts; each part is of equal value)

a) Jackson had for many years been Prime Minister of Australia. On being deposed as party leader he immediately resigned from Parliament and devoted himself to the life of a country squire at his ancestral estate.

The strain of living on his parliamentary pension was somewhat eased when the importers of Macbeth's Scotch whisky agreed to pay him $1,000,000 in return for the right to take photographs of Jackson in the living room of his mansion, each photograph clearly showing at his side an open bottle of Macbeth's and a glass of whisky. The importers were to be at liberty to use these photographs in advertising for the next three years.

Jackson's partiality to hard liquor was well known (though it was not generally known that he always refused to drink Scotch, declaring that American bourbon was the only whisky worth drinking).

One year after this arrangement was made Jackson underwent a religious experience and joined a sect, one of the principles of which is total abstinence from alcohol. Jackson asked the importers to refrain from further use of the photographs and offered to refund the $1,000,000. The importers refused, stating that the advertisements featuring Jackson's photographs were the most successful they had run.

Jackson is distressed at the continued use of the advertisements, especially as some of the members of the sect are now accusing him of hypocrisy, and seeks your advice as to what, if any, action may be open to him or (if he can persuade it to take action) to the Trade Practices Commission.

b) Fine Clothes Ltd manufactures a range of high fashion clothes. To date its clothes have been women's clothes sold through expensive boutiques, but it recently decided to expand by manufacturing men's clothes. Its first item for men was the Koala brand fine wool sports jacket, the marketing of which emphasized that it was "completely hand stitched by our own tailors." The first batch of Koala jackets was purchased by Jonathon's Menswear Ltd, which displayed the jackets prominently in its small chain of expensive men's clothing stores. The cloth used is manufactured in Taiwan from New Zealand wool and the basic parts of the garment are cut in Taiwan from a pattern made in Australia. The cut cloth is imported into Australia at a cost which represents about 20% of the total cost of producing the final item. The lining of the jackets is cut in Australia from Australian made cloth, and all the stitching and finishing work occurs in Australia. The jackets have attached to them a small label saying "Made in Australia". A competitor whose clothes have 100% Australian materials and labour content has complained to the Trade Practices Commission about Fine Clothes Ltd's marketing of the Koala jackets.

Advise Fine Clothes Ltd and Jonathon's Menswear Ltd. Would your answer differ if the jackets were labelled "Produced in Australia"?

c) Uncle Joe's brand breakfast cereals have a major share of the market for breakfast cereals. Uncle Joe's Tasty Cornflakes is particularly popular with children and many parents are attracted by its claim to be vitamin enriched. Uncle Joe's commences an extensive advertising campaign on radio and television for its "new, improved Uncle Joe's Tasty Cornflakes", stated to be "the best available" and "vitamin enriched and containing all the extra goodness children need to make sure they start the day right."

Mary is a well known critic of advertising and wishes to apply for an injunction to prevent the continuation of the advertising campaign. She claims to have proof that:

(a) The "new" product is identical to that previously marketed except for the addition of small quantities of a further vitamin (in respect of which scientific opinion is sharply divided as to whether it is capable of producing any benefits to humans).

(b) The cereals are enriched with certain vitamins though the clear predominance of scientific opinion is that nearly all children obtain sufficient quantities of these in their ordinary diet. The cereal is nutritionally indistinguishable from other major competing brands of cornflakes.

Advise Mary.

Question 6

EITHER

Paragraph 28 of the United Nations Guidelines for Consumer Protection states:

Governments should establish or maintain legal and/or administrative measures to enable consumers or, as appropriate, relevant organizations to obtain redress through formal or informal procedures that are expeditious, fair, inexpensive and accessible.

Assess the present position of Australian consumers in relation to their access to mechanisms for the redress of complaints, outlining any improvements which you consider to be desirable.

OR

"There is a general concern I have about the development of the Commonwealth law on consumer protection. It is related to the use of that law to pursue commercial and other objectives. Most of the private actions have been brought by companies against their competitors or against other companies with whom they are at odds. That would not matter if the net result was to advance the consumer interest in truthful advertising and promotion. Commonly that is so. But there is a risk of some backlash if consumer interest becomes peripheral. There could be pressure for amendment to force companies to fight on more traditional grounds ..., and the courts might begin to interpret and apply the law more conservatively because of the context of the cases. The result could run against long term consumer interest."

(R M Bannerman, "Points from experience 1967-1984", Appendix 1 in the Trade Practices Commission's Annual Report 1983-84.)

"When used in combination, sections 52 and 82 of the Trade Practices Act 1974 (Cth) have the potential to provide most effective remedies for deceived consumers ... Unfortunately, the remedy is not as simple as it seems. A combination of conservative judicial interpretations of both sections 52 and 82, ... and the colonisation of section 52 by competing businesses acting in their own interests, has left all but the ... bravest consumers without a remedy."

(Kercher and Thomas, "The reform of insurance law: caveat emptor
survives" (1987) 10 Univ of NSWLJ 173)

Discuss both these passages.

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